NEW ADVANCE RULINGS IN GST

[Dr. Sanjiv Agarwal]

Advance rulings are important in any tax law as it provides a forum for clarification and possible interpretation of statutory provisions. Moreover, it conveys the legislative intention from the revenue’s view point. Provisions of advance ruling are contained in section 95 to 106 of CGST Act, 2017 and State / UT GST enactment. Rules 103 to 107 of also provide for forms, manner, certification etc.

Advance Ruling is a guidance sought in advance from the prescribed authority. Advance ruling is, therefore,

(a)       a process of determination,

(b)       by the prescribed authority only,

(c)       of a question of law or fact,

(d)       relating to liability of GST,

(e)       on proposed supply transaction,

(f)        to be undertaken by an applicant.

The broad objectives for setting up advance ruling mechanism are:

1. To provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant,
2. To provide clarity on tax impact to non-residents and entrepreneurs, thus, facilitating Foreign Direct Investment (FDI),
3. To reduce likely litigation,
4. To pronounce ruling expeditiously in transparent and inexpensive manner for proper compliance by taxpayers.

The Authority for Advance Rulings (AAR) have been set up in all the states and we have now over 50 advance rulings on different issues already pronounced by various State Authorities. However, appellate mechanism for filing appeals against AAR rulings is not yet in place and one is faced with this challenge. Another major issue presently being faced is about multiple authorities (equal to number of States), each pronouncing a ruling of its own even if the matter is covered by some other State AAR’s rulings. There would be situations where we may have different rulings on same question(s). GST Council ought to decide on having a Centralized Authority as was there in erstwhile tax regime.

We discuss hereunder few recent advance rulings in order to provide summarized version of the ruling but these needs to be read in the background of the question involved:

Advance ruling on taxability of hotel accommodation services in relation to SEZ   

Where the applicant was providing hotel accommodation / restaurant services to employees and guests of units located in Special Economic Zones (SEZ) and charging CGST and SGST at applicable rates which was objected to by SEZ units on the ground that being zero rated supply, rate of GST should be Nil, the Authority for Advance Ruling held that the supplies of goods or service towards the authorized operations shall be treated as supplies to SEZ Unit. Further, the place of supply of the services by way of lodging in a hotel shall be the location at which the immovable property (hotel) is located and the place of supply of restaurant and catering services shall be the location where the services are actually performed. Therefore, the hotel accommodation and restaurant services provided to the employees and guests of SEZ units could not be treated as supply of goods & services to SEZ units as the services rendered by the applicant were neither part of authorized operations nor were consumed inside the SEZ. [Gogte Infrastructure Development Corporation Ltd., In Re  2018 (5) TMI 759 - AUTHORITY FOR ADVANCE RULING - KARNATAKA ]

Advance Ruling on sale of going concern 

In the instant case, applicant sought advance ruling on taxability on transaction of sale of one of the units alongwith fixed and current assets and liabilities / loans at a fixed lump sum consideration. It has been ruled that transfer or a going concern means the transfer of a running business which is capable of being carried on by the purchaser as an independent business. Such transfer of the business as a whole will comprise comprehensive transfer or immovable property, goods and transfer of unexecuted orders, employees, goodwill etc.

A going concern is a concept of accounting and applies to the business of the company as a whole. Transfer of a going concern means the transfer of a running business which is capable of being carried on by the purchaser as an independent business.

In the instant case, the applicant had not furnished any documentary evidence to establish that the Applicant is a going concern except their admission that it is an ongoing business and the transaction proposes to transfer all the assets and liabilities to the new owner. It implies that the business will continue in the new hands with regularity and a nature of permanency.

The sale of a going concern by a business house would not attract tax under the Goods and Services (GST) regime. [IN RE : M/S RAJASHRI FOODS PVT. LTD [ 2018 (5) TMI 1651 - AUTHORITY FOR ADVANCE RULING - KARNATAKA ]- Case No. KAR ADRG  6/2018 (AAR Karataka) dated 23.04.2018 - yet to be reported].

Advance Ruling on EPC contracts

The Applicant is an EPC contractor and enters into contract with various developers who desirous to set up and operate solar photovoltaic plants for supply of power generated. In various cases, the Applicant also is a Project developer wherein it is engaged in operation of renewable energy power plant projects.

Typically, a turnkey contract is entered into by the Applicant to do end to end setting up of a solar power plant which includes supply of various goods (such as modules, structures, inverter transformer etc) as well as complete design, engineering and studies transportation, unloading, storage and site handling, installation and commissioning of all equipments and material, complete project management as well as supply and construction related to various other packages for complete PV plants.

Accordingly, in the instant case, the contract entered into by the Applicant includes end to end activities i.e. supply of various goods and services intended for setting up, operation and maintenance of a solar power plant. [Giriraj Renewables Private Limited, In re 2018 (5) TMI 854 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA ].

Advance ruling on GST on interest

The applicant, Del Credere Agent (DCA), filed an application before the Authority Advance Ruling seeking advance ruling on the taxability of interest amount charged by it on short term loan given to the buyers of material. It clarified that the role of the DCA was limited to booking of order and to ensure that payment will be made to the principal in case of default of the customer. In the entire transaction neither principal supplies the goods to DCA, nor does DCA supply the goods to customers.         

The Authority for Advance Ruling ruled that the interest was the consideration towards loan extended to the customers, not towards the payment of consideration for supply of goods by the principal to the customers. Further, as per S. No. 27 of Notification No. 12/2017-Central Tax (Rate),in case of services by way of extending loans, the consideration represented by way of interest is exempt from GST. Therefore, such interest was covered under this notification. Hence, the interest received by DCA would be exempt from payment of GST. [Shreenath Polyplast (P.) Ltd., In re. 2018 (5) TMI 809 - AUTHORITY FOR ADVANCE RULINGS GUJARAT ].